Basic Concepts - Service Tax and Open Issues Professional Opportunities Jain Bimal FCA, FCS, LLB, B. Com (Hons) Chairman of IDT Committee of PHD Chamber of Commerce Chairman of Corporate Advisory Committee of IPEM Institution Member of IDT Committee of Assocham/ FICCI Member of IDT Committee of ICAI Member of Indirect tax faculties of ICAI/ICSI/ICMA Authored Book- "Goods and Services Tax – Introduction and Way forward" 4/19/2016 CS Bimal Jain 1
Constitutional Structure of Indirect Tax In India Constitution Union List Excise Duty 84 4/19/2016 Service Tax 97 State List Sales/ Purchase of Goods 54 Excise Duty on Liquor 51 CS Bimal Jain Concurrent List Octroi Duty 52 Entertainment Tax 62 2 Stamp Duty 63
TAXATION OF SERVICES – NEGATIVE LIST Services Taxable under Negative List Existing Taxable Services Restoration of Service Specific Accounting codes for Registration & Payment of Service Tax 4/19/2016 CS Bimal Jain 3
Taxable Event - Service Tax S. 66 of Finance Act There shall be levied a tax on the Value of taxable services referred to in various sub-clauses of (105) of S. 65 and collected in such manner as may be prescribed § S. 65(105) Any Service provided or to be provided (16 -6 -2005) Ø S. 65 B (51) Taxable service means any service on which service tax is leviable under section 66 B; Ø S. 66 B There shall be levied a tax at the rate of 14% on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed Ø Association of Leasing & Financial Service Companies vs. UOI 2010 (20) STR 417 SC Taxable Event Rendering of Service § 4/19/2016 CS Bimal Jain 4
Definition of Service § S. 65 B (44) “Service" means Any Activity carried out by a Person for another for Consideration, and includes a Declared service, but shall not include— (a) an activity which constitutes merely, (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be sale within Article 366 (29 A) of the Constitution; or (iii) a transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; - Employer-Employee / Secondment/ Jt Employment/ Director (c) fees taken in any Court or Tribunal established under any law for the time being in force. 4/19/2016 CS Bimal Jain 5
Declared Services –S 66 E 9 Activities declared to be Service: • Renting of Immovable Property (Entry 49 – List II) b. Construction of a complex, building, civil structure for which consideration received before issuance of completion certificate (Entry 49) • Temporary Transfer/Permitting Use or Enjoyment of Intellectual Property Rights {IPR 10/9/2004} • Development, Design, Implementation etc. of Information Technology Software {IT Software Services – 16/5/2008} • Agreeing to the obligation or to refrain from an act, or to tolerate an act or a situation, or to do an act; • Transfer of goods by way of hiring/ leasing/ licensing without transfer of right to use such goods {16/5/2008} • Activity in relation to delivery of goods on hire purchase/ any system of payment by instalments h. Service portion in the execution of a works contract {A -366 (29 A)} • Service portion in an activity involving supply of food/drinks/article of human 4/19/2016 CS Bimal Jain 6 consumption {A -366 (29 A)} Page 6
Definition of Service Explanation 1. — Nothing contained in this clause shall apply to functions performed by MP, MLA, Other Govt. Officers or Govt. Bodies… § Explanation 2. - For the purposes of this clause, transaction in money shall not include any activity relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged…. § Explanation 3. - For the purposes of this Chapter, (a) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons; (b) an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons. § Explanation 4. - A person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory; § 4/19/2016 CS Bimal Jain 7
TAXATION OF SERVICES – NEGATIVE LIST Services Under Negative List Services under Exempted List Other Exemptions/Abatements All remaining Services to be taxable under the Negative List Approach 4/19/2016 CS Bimal Jain 8
Obligation & POT 4/19/2016 CS Bimal Jain 9
POT - General Rule 3 § POT, the earliest of the following: - Date of Receipt of Money (Advance) - When Invoice is issued within 30 days from Date of Completion of Service Date of Invoice - When Invoice is not issued within 30 days from Date of Completion of Service § Rule 4 A of STR – Invoice to be issued within 30 or 45 days in case of banks and FIs, (14) days from the Date of completion of service or Date of Receipt of payments towards the value of such taxable service, whichever is earlier Rule 4 A of STR - proviso inserted - Invoice not required to be issued if amount received is upto Rs. 1, 000 in excess o f the amount indicated in the Invoice. § 4/19/2016 CS Bimal Jain 10
Rule 7 of POT Rules • Rule 7 starts with non-obstante clause: “Notwithstanding anything contained in rules 3, 4, or 8” • POT under Reverse Charge (Except Associated Enterprises located outside India): v Payment made within 3 months from date of invoice – Date of payment; v Payment not made within 3 months from date of invoice - Date immediately following the end of 3 months 4/19/2016 CS Bimal Jain 11
Rule 7 of POT Rules – Contd…. • In case of Associated enterprises, where the person providing the service is located outside India: • POT shall be earlier of the following: v Date of debit in the books of account of SR; v Date of Payment 4/19/2016 CS Bimal Jain 12
SR liability Paid by SP -? § Service Tax - Reverse Charge liability paid by Service Provider, should be demanded again from Service Recipient? § Umasons Auto Compo Pvt. Ltd. Vs. Commissioner of Central Excise & Customs, Aurangabad [2014 - TIOL – 126 – CESTAT - MUM] § Once the amount of Service Tax is accepted by the Revenue from the provider of GTA service, it cannot be demanded again from the recipient of the GTA service 4/19/2016 CS Bimal Jain 13
Service – Service Tax § Activity – Economic § Person – 65 B (37) Service Provider – Service Recipient § Consideration – S. 67/ Reimbursement of Expenses • Monetary – Free Gift/ Charities/ Grant • Non-Monetary: Kind • Barter • Advance – Services / Goods • Deposit - Refundable/ Non- refundable • Demurrage/ Accidental Damage – Penalty • Late Payment - Interest • Short received – Deficiency of Services • Bad Debts 4/19/2016 CS Bimal Jain 14
Interest on delayed payment of ST, Excise & Customs Tax/Duty Service tax (S 75 of FA, 1994) Excise Duty (S 11 AA of CEA, 1944) Rate of Interest on delayed payment (Per Annum) a. Any amount 24% collected as Service Tax but not deposited 15% b. Others 15% Customs 15% (S 28 AA of CA, 1962) Notification No. 13/2016 Enactment of -ST dated 01. 03. 2016 FB, 2016 Notification No. 15/2016 01. 04. 2016 -CE(NT) dated 01. 03. 2016 Notification No. 33/2016 01. 04. 2016 -Cus(NT) dated 01. 03. 2016 CS Bimal Jain 4/19/2016 Effective from 15
Open Queries…. . v Rate of Interest on delayed payment of ST for the period prior to enactment of Finance Bill, 2016 – JS TRU Letter. D. O. F. No. 334/15/2014 -TRU, dated July 10, 2014 E. G. Assessee pays the dues of 6 th July, 2015 on 6 th December, 2016. v When 15%/ 24% would be applicable v What is meaning of amount collected as ST but not deposited – Cum Tax Value S. 67(2) of Finance Act, 1994 v What rate of Interest applicable for part collection of consideration along with ST but not received full payment and liability to be paid on accrual basis 4/19/2016 CS Bimal Jain 16
![Penalty Ø Penalty for Delayed Payment of Service Tax [Non-Fraud Cases] – S. 76](https://present5.com/presentation/954ae1eaa9291269f468fe7b4ed24b23/image-17.jpg "Penalty Ø Penalty for Delayed Payment of Service Tax [Non-Fraud Cases] – S. 76")
Penalty Ø Penalty for Delayed Payment of Service Tax [Non-Fraud Cases] – S. 76 : a Penalty not exceeding 10% of Service Tax provided - No Penalty if ST + Interest paid within 30 days from SCN 2. 5% of ST Amount if ST+ Interest paid within 30 days from OIO Ø Penalty for Contravention of Provisions & Rules there of – S. 77 - Maximum Rs. 10 K 3/18/2018 CA Bimal Jain 17
Penalty Ø Penalty for Fraud cases: Equal to ST amount Subject to: - Where True & Complete details recorded in books from 8/4/2011 to 14/5/2015 – Penalty of 50% of ST Amount 15% Penalty if ST + Interest paid within 30 Days of SCN 25% Penalty if ST + Interest paid within 30 days of OIO o Penalty U/S 76 & 78 are mutually exclusive 3/18/2018 CA Bimal Jain 18
Proviso inserted in Rule 7 • Notification No. 21/2016 -ST dated 30. 03. 2016 • Where there is change in the liability or extent of liability of ST to be paid under Reverse Charge – v Service has been provided and the invoice issued before the date of such change, but payment has not been made as on such date, the POT shall be the date of issuance of invoice. 4/19/2016 CS Bimal Jain 19
Practical Illustrations v New levy ‘Krishi Kalyan Cess’ (“KKC”) applicable from 01. 06. 2016 @ 0. 5% on value of all taxable service (i. e. from 14. 5% to 15%). v Let us understand applicability of KKC in the light of amendment made in Rule 7 of the POT Rules 4/19/2016 CS Bimal Jain 20
Erstwhile Rule 7 Vs. Amended Rule 7 Date of service As per erstwhile Rule 7 20. 05. 2016 25. 05. 2016 04. 06. 2016 POT shall be DOP: KKC applicable As per amended Rule 7 20. 05. 2016 25. 05. 2016 04. 06. 2016 POT shall be DOI: KKC not applicable 4/19/2016 Date of invoice Date of Applicability of KKC (DOI) payment (DOP) CS Bimal Jain 21
Service Provider Vs. Service Receiver Date of service Date of invoice (DOI) Date of payment (DOP) Applicable Applicability Rule of KKC Liability of SP under forward charge 20. 05. 2016 25. 05. 2016 04. 06. 2016 Rule 5(a) of KKC applicable POT Rules Liability of SR under reverse charge 20. 05. 2016 25. 05. 2016 04. 06. 2016 Rule 7 of POT Rules POT shall be DOI: KKC not applicable No changes made in Rule 3 or Rule 5 of POT Rules: Liability is more in the hands of SP as compared to SR Taxable event under Service tax is the rendition of service - Association of Leasing & Financial Service Companies Vs. Union of India [2010 (20) STR 417 (SC)] 4/19/2016 CS Bimal Jain 22
![Imprisonment & Power to Arrest v Imprisonment Provisions [S. 89] - Threshold Monetary Limit](https://present5.com/presentation/954ae1eaa9291269f468fe7b4ed24b23/image-23.jpg "Imprisonment & Power to Arrest v Imprisonment Provisions [S. 89] - Threshold Monetary Limit")
Imprisonment & Power to Arrest v Imprisonment Provisions [S. 89] - Threshold Monetary Limit increased from Rs. 50 Lakh to Rs. 2 Crore v Power to Arrest – Non Bailable Offence – Service Tax collected but not deposited - Threshold Monetary Limit increased from Rs. 50 Lakh to Rs. 2 Crore 4/19/2016 CS Bimal Jain 23
Period of Limitation for Non-Fraud Cases ST, Excise & Customs Tax/Duty Service Tax (S. 73 of FA, 1994) Excise Duty (S. 11 A of CEA, 1944) Customs (S. 28 of CA, 1962) 4/19/2016 Relevant Period for issuing SCN Prescribed time Proposed Clause of time period FB, 2016 period 30 mths Cl. 149 18 mths (w. e. f 28. 05. 2012) 1 Yr 2 Yr Cl. 140 1 Yr 2 Yr Cl. 117 CS Bimal Jain 24 Effective from Enactment of FB, 2016
Whether it is justified…. . v Automation and compulsory e-filing of returns – CE/ ST v Revamp in the Service Tax Commissionerates and also more positions have been created v Detrimental to Ease of doing business initiative v Giving unwanted contradictory message of lethargic system to the start up entrepreneurs and outside World v Citizen Charter - Transparent – Accountability & Responsibility of Govt. Dept. v Period before/ after enactment of FB, 2016 v Period of Refund – S. 11 B – 1 Yr v Restriction on Availment of Cenvat credit on Inputs/ Input Services – Now, on CG used exclusively for 2 Yrs for exempted goods and exempted Services 4/19/2016 CS Bimal Jain 25
Changes with respect to ‘Education Sector’ • Omission from Negative List of Services (Section 66 D) • (l) services by way of– (i) pre-school education and education up to higher secondary school or equivalent; – (ii) education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force; – (iii) education as a part of an approved vocational education course; Bimal Jain 26
Entry 9 of Mega Exemption. . . 9. Services provided, (a) by an educational institution to its students, faculty and staff; (b)to an educational institution, by way of, (i) transportation of students, faculty and staff; (ii) catering, including any mid-day meals scheme sponsored by the Government; (iii) security or cleaning or house-keeping services performed in such educational institution; (iv) services relating to admission to, or conduct of examination by, such institution; Bimal Jain 27
Services relating to Stage Carriage – S. 66 D(O)(i) (o) service of transportation of passengers, with or without accompanied belongings, by- (i) a stage carriage; (ii) to (vi)…… • Services by a non air-conditioned stage carriages would still not entail the levy of Service Tax, as the same has been exempted by amending Entry 23(bb) of Mega Exemption Notification No. 25/2012 -ST. Bimal Jain 28
Contd… • Further, changes are also made in Sl. No. 9 A of the abatement notification no. 26/2012 -ST to provide abatement on services provided by stage carriage (w. e. f. 01. 06. 2016) of Taxable Service Sl. Description Percent Conditions No. 9 A age Transport of passengers, with or without accompanied belongings, bya. a contract carriage other than motorcab. b. a radio taxi. c. a stage carriage Bimal Jain 40 CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004 29
Service of transportation of goods by Aircraft / Vessel • Omission from Negative List of Services (Section 66 D) (p) services by way of transportation of goods (i)…. (ii) by an aircraft or a vessel from a place outside India up to the customs station of clearance; or (iii)…. However, the services by an air-craft would still not entail the levy of Service Tax, as the same has been exempted by inserting a new entry 53 under the Mega Exemption Notification which reads as under: • New Entry 53 inserted in Mega Exemption Notification No. 25/2012 -ST (w. e. f. 1 st June 2016) • 53. Services by way of transportation of goods by an aircraft from a place outside India upto the customs station of clearance in India. Bimal Jain 30
Retrospective Amendment v S. 101 of FB, 2016 Entry 12(d) of ME NN. 25/2012 -ST: Exemption allowed for Services provided by way of Construction, etc. of canal, dam or other irrigation works to Governmental Authority for the period 1 -72012 to 29 -01 -2014 v Change in definition of Governmental Authority v Refund of ST, if paid during the period, to be filed within 6 months from enactment of FB, 2016 4/19/2016 CS Bimal Jain 31
Retrospective Amendment v S. 102 of FB, 2016 Entry 12 of ME NN. 25/2012 -ST: Exemption withdrawn is restored w. e. f 1 -4 -2015 for Services (Construction, Erection, etc. ) provided to Govt. / Local Authority/ Governmental Authority - Civil Structure/ Original Works for use other than Business - Structure meant for Education, clinical, Art or Cultural - Residential complex for self use or use of employees v Contract entered prior to 01 -03 -2015 and Stamp Duty, as applicable, paid prior to 01 -03 -2015 v Continue to be exempted till 31 -03 -2020 and Refund of ST, if paid during the period, to be filed within 6 months from enactment of FB, 2016 4/19/2016 CS Bimal Jain 32
Retrospective Amendment v S. 103 of FB, 2016 Entry 14 of ME NN. 25/2012 -ST: Exemption withdrawn is restored w. e. f 1 -4 -2015 for Services provided by way of construction, erection, commissioning, installation of - Original Works for Airport/ Port v Contract entered prior to 01 -03 -2015 and Stamp Duty, as applicable, paid prior to 01 -03 -2015, subject to production of Certificate by Ministry of Civil Aviation or Shipping v Continue to be exempted till 31 -03 -2020 and Refund of ST, if paid during the period, to be filed within 6 months from enactment of FB, 2016 4/19/2016 CS Bimal Jain 33
Section 66 D - Any services provided by Government or Local Authority to a Business Entity “ 66 D. The negative list shall comprise of following services, : – (a) Services by Government or a Local authority excluding the following services to the extent they are not covered elsewhere(i) Services by the Department of Posts by way of speed post, express parcel post, life insurance and agency services provided to a person other than Government; (ii) Services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) Transport of goods or passengers; or (iv) Any Service other than services covered under clauses (i) to (iii) above, provided to business entities; ” 4/19/2016 CS Bimal Jain 34
Amendment in the Mega Exemption Notification to exempt certain Governmental services Entry No. Particulars of Exemption Amended Services by Government, a Local authority or Governmental authority by way of any activity in relation to any function entrusted to a municipality under article 243 W of the Constitution 39 New Exemptions provided for services provided by Government or a local authority 54 to another Government or local authority except services specified in subclauses (i), (ii) and (iii) of Section 66 D(a) of FA, 1994 55 issuance of passport, visa, driving licence, birth certificate or death certificate 56 where the gross amount charged for such services does not exceed Rs. 5000/-, except for services specified in sub-clauses (i), (ii) and (iii) of Section 66 D(a) of FA, 1994. Continuous supply of service gross amount charged should not exceed Rs. CS Bimal Jain 35 5000/- in a FY 4/19/2016
Amendment in the Mega Exemption Notification Cont…. Entry No. Particulars of Exemption New Exemptions provided for services provided by Government or a local authority 57 tolerating non-performance of a contract - consideration in form of fines/ liquidated damages is payable 58 (a) registration required under any law for the time being in force; (b) testing, calibration, safety check or certification relating to protection or safety of workers, consumers or public at large, required under any law for the time being in force 59 assignment of right to use natural resources to an individual farmer for the purposes of agriculture 4/19/2016 CS Bimal Jain 36
Amendment in the Mega Exemption Notification Cont…. Entry No. Particulars of Exemption New Exemptions provided for services provided by Government or a local authority 60 any activity in relation to any function entrusted to a Panchayat under Article 243 G of the Constitution 61 assignment of right to use any natural resource where such right was assigned before 01. 04. 2016 62 to operate as a telecom service provider or use radio frequency spectrum during FY 2015 -16 63 deputing officers after office hours or on holidays for inspection or container stuffing or such other duties in relation to import export cargo on payment of MOT 4/19/2016 CS Bimal Jain 37
Issues in CCR, 2004 q Rule 2(k) All goods used for generation of electricity or steam or pumping of water for captive use; All capital goods having value up to Rs. 10, 000 per piece v Full CC in Yr of Purchase and Depreciation q Rule 3(4) - Proviso amended/ inserted: Cenvat credit not to be used for payment of Infrastructure Cess [Motor Vehicles – 8703] v What happen for motor vehicles returned to factory for remade, refined and reconditioning U/R 16 of CER, 2002? 4/19/2016 CS Bimal Jain 38
Rule 6 of CCR, 2004 q Rule 6: Rationalized and Simplified Explanation 3 & 4 Exempted Service includes an activity which is not Service U/S 65 B(44) of Finance Act – Alarming Rule 6(4): No CC on CG used exclusively for EG/ES for 2 Yrs from date of production or provision of service 4/19/2016 CS Bimal Jain 39
Rule 7 of CCR, 2004 Distribution of Cenvat Credit by Input Service Distributor (“ISD”) ISD can distribute Credit to it’s manufacturing units, Units providing taxable output Services or Outsourced manufacturing unit – means • Job-worker paying duty under 10 A of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000; or • Contract manufacturer, paying under Section 4 A of the Central Excise Act, 1944; q 4/19/2016 CS Bimal Jain 40
Professional Opportunities for CS q q q q q 4/19/2016 Advise and Consulting Registration Interactions with the Dept. Hand Holding: Payment of Taxes/ Preparation of Return filing Pre- Audit/ Diagnostic Review/ Health Check Effect of Budgetary Changes – Business Model Litigation Audit Assistance – Internal/ External Investigation & Enquiry CS Bimal Jain 41
Thank You! A 2 Z Taxcorp LLP Flat No. 34 B, Ground Floor, Pocket -1, Mayur Vihar, Phase–I, Delhi – 110091 India Desktel: +91 -11 -22757595/ 42427056 Mobile: +91 9810604563 bimaljain@a 2 ztaxcorp. com www. a 2 ztaxcorp. com 4/19/2016 CS Bimal Jain 42
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